Transcript Slide 1
Case Study: Aureos Southern African Fund Ron Den Besten 20th October 2010 Aureos Capital Regions: - Central America - South America - China - West Africa - East Africa - Southern Africa - South East Asia - South Asia - Pacific Islands • Independent private equity fund manager focused on building mid-market companies • Since its establishment in 2001, Aureos has increased its funds under management to over US$ 1.2 billion and extended its geographical footprint to over 50 emerging markets covering Asia, Africa and Latin America, by establishing 16 regional private equity funds. • 184 transactions completed in the emerging markets since 1989 • Unparalleled global infrastructure underpinned by strong local market intelligence • Over 50 institutional investors The Lifecycle of a Private Equity Fund Fundraising Launched: 30 June 2003 Current Fund Size: US$50 million Regions: Johannesburg, SA Lusaka, Zambia Port Louis, Mauritius Institution Investment in US$ % Stake in Fund CDC Capital Partners 12.55 25.1 Norfund 12.55 25.1 European Investment Bank 10.00 20.0 Canadian Investment Fund for Africa 4.9 9.8 International Finance Corporation 6.0 12.0 Nordic Development Fund 4.0 8.0 Fundraising Investor Setup & Transaction Flow Distributions • • • Capital Income Exit Proceeds Drawdown • • • Fees and Expenses Capital for approved investments Follow-on investments Returns • • • Hurdle Rate – 6% 25% Catch - Up 20/80 Carry Investment Period Deal Pipeline / Approval Process • ASAF has 10 Deals • Source of Deals: • Proprietary • Intermediary Watch list Rejected Initial Enquiry Initial Screening Dead Deals Final Screening Approved On hold Pre Disbursement Invested Investment Period Initial Screening Process Business Integrity & Anti Money Laundering Check ESG Check Legal Provisions Initial Screening Deal Structure, Portfolio Management & Exit Valuation Final Screening Process ESG Check Legal Provisions Valuation Final Approval Portfolio Management & Exit Plan Deal Structure Investment Period Investment Criteria Investment Types Industries Across all industries (However utilise World Bank exclusions including: No investments in Tobacco, Liquor, Gaming and Child Labour related businesses) Fund ASAF Investment Size US$0.5 – US$5 million (Vintage) (2003) Instruments Fund Size 50.0m Investments to date 42.0m Investments approved 0.7m* Total 42.7m % of Committed Capital 85.4% Management Buy-Outs Management Buy-In Expansion Capital Public to Private Privatisations Black Economic Empowerment Equity Quasi-equity/ Mezzanine Loans Currency US$ and Local Currency Equity Stake Significant minority stakes with requisite minority protections Ability to take control No of investments 10 No. of remaining investments 8 Investment Period Best Practice Corporate Governance Studies have indicated; “Emerging market companies with the best governance practices generated a cumulative 5-year return 542% greater than firms that had poor governance” Gill, A. - CLSA Emerging Markets, 2001 “The best governed companies generated a return on equity that was 23.8% higher than firms with poor corporate governance” Brown, L & Caylor, M – Institutional Shareholder Services, 2004 “Portfolios of companies with strong shareholder-rights protections were found to outperform portfolios of companies with weaker protections by 8.5% annually” Gompers, P, Ishti, L & Metrick, A. – Quarterly Journal of Economics 118 no.1, 2003 Investment Period Industries Invested Country Exposure Telecommunication, 12% Information Technology, 12% Madagascar, 5% Manufacturing, 35% Regional, 20% South Africa, 40% Angola, 6% Construction, 10% Financial Services, 20% Agri Processing, 11% Zambia, 29% Deal Types MBO, 17% Replacement, 36% Expansion/Growth, 36% MBI, 11% Portfolio Management Value of Equity Investment at Entry = x Value Value 1/3 = External Factors 1/3 = Factors that can be Influenced 1/3 = Deal Structure / Leverage Value • How much value have we left on the table? • Where could we have done more? Value of Equity Investment at Exit = 2x / 3x / 5x • What could the multiple have been if we had extracted all potential value? Portfolio Management Portfolio Management: Summarized Previous Action Plan Budget Valuation ESG Report Investment Valuation Report RCF Investment Financial Performance P o r t f o l i o M e e t i n R g e s v i e w PM is a very important stage of the investment which involves monitoring of the investment and constant reporting to the investors. The overall performance of the portfolio company is measured, tracked and corrected in this stage to ensure a successful exit. Revised Action Plan During this stage the Fund Manager provides growth, guidance and assistance to ensure an efficient portfolio management leading to attractive returns. Portfolio Management Passive Value Addition Active Value Addition Setting aside time for Board Representation while focusing on primary activities e.g. deal execution Designating individual executives to focus solely on enhancing investment value and limited responsibility to 3-5 deals Reviewing outcomes on interventions from an expost perspective Reviewing inputs to interventions, examining progress and learning from outcomes Generating ideas that are suggested to Investee management for consideration Developing a comprehensive, integrated intervention plan, including target outcomes Contributing ideas to management during regular, but infrequent board meetings Frequent interaction with management, providing input on how to improve effectiveness of interventions Portfolio Management Leveraging Industry Networks Personal relationships Professional relationships eg. Real People Investment Holdings (Pty) Ltd Tasked with securing ZAR100m lines of credit in the first 18 months. Managed to secure ZAR143m in 6 months Introduced DFI’s Strengthened Balance Sheet Provided assurance to other credit line providers Funding Facilities grew from ZAR 127m in 2007 to over ZAR 1bn in 2008 Acquisition Strategies Building pan-regional businesses ASAF Entry Portfolio Management Industry & Competitor Analysis Importance of Analysis and tracking competitors Gather Intelligence Eg; Understanding why competitor is managing 25% revenue growth pa vs our Investee growth of 15% Identify opportunities and threats Can make use of dashboarding here as well.... Competitor Sales Analysis 250 200 150 Competitor Investee 100 50 0 2006 2006 2007 2008 2009 Portfolio Management Exports US$ 16m Taxes Paid US$ 57m Turnover US$ 330m Over US$ 0.9m spent on training Source: 2009 ASI Data (9 investments) ASAF Portfolio Development Impact ….. Of which US$ 34m was in investment in new Technology Over 3 367 Employees Over US$ 112m on Investment mobilisation… Exit Identification of a buyer Integrity Checks Valuating the Business Prepare Exit Paper Different Exit Methods There are different exit methods employed by the investing companies to exit from the invested portfolio company. Following are some of the exit methods employed by the Fund: • • • • Management Buy Out (MBO) IPO Trade Sale Buy Back Fund ASAF IC Exit Approval Current (as at Q3 2010) Invested Current Vintage Fund Capital Income Value Received Received Value of Fund 2003 42m 10.3m 11.9m 49.2m Exit Capital Income Value of Received Received the Fund 1.5m 22.2m Current (as at Q3 2010) Forecast (end of 2012) 7.4m 72.4m 8.9m Forecast (end of 2012) IRR Cash Multiple IRR Cash Multiple 20.64% 1.70x 26.0% 2.47x Exit Exit (Example) Deal Details Investee Fund: Date of Investment: Sector: Deal Type: Commada / Orange Madagascar Aureos Southern Africa Fund (ASAF) 31 October 2005 Telecommunications Replacement Capital Shareholding Structure: Aureos through SPV Commada: 5.0% France Telecom: 33.6%, Societe Miaraka: 31.7%, Mauritius Telecom: 15.9% Country: Madagascar Details of Returns Original Cost: $2 347 199 Deal Structure: Equity (50% SPV Commada): $40 Shareholder Loan: $2 347 159 Cash Received: $9 609 346 Cash Multiple 4.09 IRR: 43.14% Details of Cash Flow Money Paid Money Received 2005 -2 347 199 150 423 2006 198 630 2007 370 105 2008 596 688 2009 416 550 Sep 2010 7 876 950 Summary Risks and Challenges Experienced Teams Local Presence Integrity of Sponsors / Management Investment Processes Industry Exposure Proprietary Deal Flow Deal Structuring • Cash Flow • Currencies • Legal Provisions Track Record Ke a Leboga Thank You This financial promotion is issued by Aureos Advisers Limited which is authorised and regulated by the Financial Services Authority (“FSA”). All Aureos Funds (the “Funds”) are defined as “Unregulated Collective Investment Schemes” (“UCIS”) and the promotion of a UCIS either within the UK or from the UK is severely restricted by statute. Consequently, this document is only made available to professional clients and eligible counterparties as defined by the FSA and also to persons of a kind to whom the Fund may lawfully be promoted by an authorised person by virtue of Section 238(5) of the Financial Services and Markets Act 2000 and COBS 4.12.1R. Shares or Interests in the Funds should only be purchased by persons with experience of participating in unregulated schemes and any other person who receives this document should not rely upon it. Aureos Advisers Limited